Regulators around the world are reportedly set to tighten the screws on risks outside of the banking system, a new report claims.

According to the FT, regulators will focus their efforts on ‘non-bank financial institutions’ (NFBIs), such as hedge funds, clearing houses and pension assets, after a series of crises over the past two years such as the Covid-19 pandemic, the surge in energy costs and the Bank of England’s intervention to stop a collapse in the UK government bond markets.

The report notes that while regulations on banks were tightened following Lehman Brothers’ collapse in 2008, risks have largely migrated elsewhere in the financial system. NBFIs now account for almost half of global financial assets, the report added.

While balance sheets were the focus in 2008, liquidity has been the biggest focal point in recent years. The BoE last month announced what will be the world’s first stress test when it looks at the underlying risks in key financial markets where NBFIs are major participants.

Later this year, the Financial Stability Board will report on how countries have implemented their 2021 recommendations to improve oversight of money market funds. In the next 12 months, the FSB will focus its efforts on reducing 'cliff effects', addressing open-ended funds and better understanding hidden leverage in the NBFI market.

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